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Cryptocurrencies

Bitcoin, ethereum, litecon et. al.

Here, I'll start

[quote]Bitcoin is probably closer to gold than dollars. Why is gold worth >$1K per ounce? Don't say industrial uses or jewelry. Those applications are utterly dwarfed by the amount of gold just sitting around in bricks to hold value. People buy gold to store value which makes gold a good store of value which leads people to buy gold to store value, etc, etc.[quote]

One element of the best investment strategy is to hold your assets for a long, long, very long time*. If I bought bitcoin cheaply a while back, I would plan on holding it for decades. I would not consider selling based on price movement because price movement tells us nothing.** I would, however, consider selling (or buying more) based on some learned information about the asset itself.

*Risk associated with investment essentially breaks down into two different types: specific and market. Specific risk is the risk you take on by investing in individual firms; if you invest in one firm and it goes down, your portfolio goes down. Market risk is the risk you take on by investing itself; your portfolio only goes down if the market goes down. Financial and economic theory teaches that specific risk can be wholly eliminated by diversification. The math backs that up. Market risk cannot be eliminated. However, and this is a big however, market risk can be *adjusted* for enough that for all intents and purposes, it is eliminated. This is done by holding all your diversified assets for a very long time. Then, recessions and bear markets no longer threaten you. Only something like alien invasion (where the market would collapse near entirely) threaten you.

** Look up "random walk" and efficient market hypothesis. Pretty much the only theory on this taught in my classes says that a price change doesn't tell us how the price will change in the future, but it's an information change that changes prices. Economics is *supposed to* teach the idea "don't reason from a price change," but lately a lot of economists reason from a price change, and it is very common among others. But let me tell you, don't reason from a price change. Lots of inflation today doesn't mean less inflation tomorrow. That is different than saying that lots of inflation today could lead to less inflation tomorrow because of policy or investment responses adopted because of the lots of inflation today, but that's reasoning from an information change, which is fine. And you would want to identify the information change first before altering your investment.

I basically say all that to say that we don't know what is going to happen to bitcoin, and the price of bitcoin doesn't tell us what will happen to bitcoin. To get an idea about what is likely to happen with bitcoin, you'd have to learn a lot about bitcoin.

As nice as it would be to get lucky with something like having bought a bunch of bitcoin or apple cheaply years ago, it's not like standard, non-luck based investment doesn't also get you rich. Something like dollar-cost averaging* into mutual funds will make you rich. It will just take a few decades. And it takes restraint and a minimum quality of knowledge/belief in the time-value of money.

*Select an interval and a fixed sum, and invest the sum each time the interval comes around regardless of market activity. Over the long haul, your return will be the market return (about 6%).

Another way of looking at it is that when you trade stocks, you are essentially saying "I have more/better information than anybody and everybody else such that I can safely say the stock is wrongly valued." And everybody else who trades engages the same thing. You can see how this means it is near impossible to actually have more/better information than others consistently. This is because the stock price already adjusts for publicly and privately held information. But it CAN happen, and that's essentially if you have an interpretation advantage regarding the available information. The types of situations in which we have likely seen it happen is like with Warren Buffet, where his information advantage comes from applying analytical expertise to various companies and identifying ones he thinks are undervalued and then buying and holding for a very long time.

Essentially, the only way to "beat the market" is to understand what is going on with firms themselves better than anybody else.

It's money that no one uses as actual money outside of dark-drug deals. It's money that becomes more money tomorrow because people yesterday thought it should be and now they want in. It doesn't make a smack of sense.

It's money that no one uses as actual money outside of dark-drug deals. It's money that becomes more money tomorrow because people yesterday thought it should be. It doesn't make a smack of sense.

You can quite easily swap it for money. You can also buy lots of things online, that aren't drugs, with it.

Obviously you'd rather have $5 than $5 worth of bitcoin but some people have made a nice bit of money out of not really doing anything and now I imagine a lot more will have lost a lot more as a result.

And after x amount of years saying "it's just a bubble it's a crazy investment it's a bubble blah blah" these people are now going "told you so told you so" because it lost a third in a week or something, while forgetting to mention it's still worth an imperial fuckton more than it was a year ago.

Imagine if I invested 5k in it last christmas and cashed out today. I'd get a measly 70k ish, as opposed 100k ish if only I cashed out last week. Damn, I wish I earned like 60 fucking quid at 1.5% at a nice risk free bank.

And after x amount of years saying "it's just a bubble it's a crazy investment it's a bubble blah blah" these people are now going "told you so told you so" because it lost a third in a week or something, while forgetting to mention it's still worth an imperial fuckton more than it was a year ago.

Imagine if I invested 5k in it last christmas and cashed out today. I'd get a measly 70k ish, as opposed 100k ish if only I cashed out last week. Damn, I wish I earned like 60 fucking quid at 1.5% at a nice risk free bank.

But you're missing the fact that it wasn't until it shot up in value a shit load that people were starting to talk about it again.

Everyone is a fucking fish who is so far behind knowing what's going on that it's pathetic and literally no one gains anything from these conversations. It's just people chatting shit and picking time frames to make their argument gain legitimacy.

The sad thing is how people who don't have much always fall for the shit get rich quick schemes.

The price derives from the facts (and what people believe are the facts), not vice versa. The facts don't derive from the price (unless you can find that the price changes the facts, which probably only happens in the teeniest tiniest ways then quickly corrects for the silliness).

Per Scott Sumner, the bubble hypothesis is bollocks because it is not useful. His main point on it is that it contains no predictive power. This means that even if a bubble happens, nobody notices (reliably) and the circumstances don't provide a predictive model in retrospect. I go a little further to say that it is a contradiction of ideas. Something being a bubble means that it doesn't reflect the "true" value of the something. The problem with this is that the market value is the true value, at least as closely as any "true" value exists. Prices of everything, even the most useful things like oil, depend entirely on what people think the value should be. I know of no theory that claims to differentiate market value from "true" value.

There are uncountable examples of people claiming things are bubbles, and the claims are correct no greater than random.

A better explanation exists and I wish I could provide it, but I can't. As far as I can tell, the legitimacy the bubble hypothesis gains among economists emerges from Keynes' "animal spirits", where people get caught up in hallucinations of sorts and a price can be bid up because a price is bid up. I do not find this convincing due to theories developed since Keynes' time: the efficient market hypothesis and rational expectations. These tell us that the market price adjusts to all information and that agents' current actions account for expectation of the future. This means that if Keynes' animal spirits were engaged -- meaning that people bid up the price because the price is being bid up -- then it means that other investors would put negative pressure on the price since the desire to bid up the price because the price is being bid up means the price is probably being bid up too much.

Regarding real world examples, the bubble hypothesis fails miserably. Personally, it's because I used to believe in bubble claims that I no longer do. Back in the 00's, they said China was in a bubble and will pop soon. And I was like okay that makes sense. But it never popped and the bubble-mongers just kept pushing the date back. Having come from a religion that did that shit, I wasn't fooled by that nonsense. On top of that, the appearance of bubbles makes perfect sense even if bubbles aren't real. For example, if a recession hits, would you expect each sector of the economy to fall equally? No. Parts of the economy fall faster in a recession than others, and those parts are always claimed to be bubbles in retrospect. Making that sort of claim is no way to brain.

I wonder if it could be that if people are not worried about bubbles then they can happen, and if people are worried about bubbles then they don't happen. People really, really do not like losing money. Any possible way to spot a bubble, short that shit. Which means it won't bubble. But if nobody thinks bubbles are a thing, then maybe investors get lazy and base their investment decisions solely on the investment decisions of other investors. Then you could get the Keynesian animal spirits.

Whilst I appreciate the point that the hypothesis is somewhat pointless as it doesn't give tangible results I don't think that this means the phenomenon doesn't exist. IT's just poorly understood. I could accept it doesn't exist if you provided a better reason for the phenomenon we observe.

What you seem to be saying is that's it's a poorly understood and badly applied reason. That more boils down to people being fish though and not understanding markets.

The bit you say about markets reacting almost instantly and understanding all sides makes no sense to me. People thinking that they can up sell to others to the point that it no longer is viable makes a huge amount more sense to me and I don't see why this wouldn't exist in reality.

It's like if you drop something the reason it drops is because of gravity but if you didn't know that you could come up with all sorts of weird nonsense shit to explain that phenomenon. Although it'd all be shades of wrong it doesn't mean that it doesn't happen.

I think what's going on is that true value is unknown. I mean, the value of oil and gold is fucking zero if some new mega virus kills off 99% of the population. What are the true values of oil and gold? There is not truer value than the market value.

This means that the value of something depends on what others value it (definition of market value). So then a bubble could happen if investors wrongly interpret what others value something as, since that means the value would come down later when the real world results simply don't happen.

Eh I'm gonna stop here. This is something nobody has fully figured out. It rubs the wrong way. Its total lack of usefulness rubs the wrong way.

The actual article is paywalled but it's not like any of yous would read it anyway.

Reading the paper is always such a good idea.

Example: I talked a bit with my prof about the idea of bubbles. I hold the market monetarist/Chicago school view that asset price bubbles are not "real". He holds the Keynesian view that they are. He referenced a game theory paper that found bubbles in experimentation. I read it, and while good, the methodology of the experiment shows problems that could allow for the illusion of bubbles even if bubbles aren't "real".

Crypto's value is based on the possibility that it will be adopted as an actual currency in the future.

The number of people trying to make it a real money vrs those just riding the high is 1:1000.

The current value of any coin is based on human psychology. Everyone in the market needs more people in the market. They can't bank winnings until losers show up to buy. And they only become winners when they can find new, fresh losers.

If anycoin has a future, it needs zealots and believers. What it has are mostly fools.

If anycoin has a future, it needs zealots and believers. What it has are mostly fools.

I'm not so sure. Nobody can even tell you in exact terms why a specific change in a price happened. Current discussion by economists includes the idea that investors into what have since been called bubbles were actually right.

I'm not so sure. Nobody can even tell you in exact terms why a specific change in a price happened. Current discussion by economists includes the idea that investors into what have since been called bubbles were actually right.

There was a cryptocurrency ponzi scheme called Bitconnect. It promised users access to their 1% return a day trading bot, you just had to exchange dollars for bitconnectcoins.

Even the central thrust of bitcoin is built on whispers. In regards to bitcoins, there isn't a good financial decision to be made unless you believe bigger fools than you are just over the horizon.

Yet, it is very likely that one day cryptocurrencies will do what people today think they will. That is essentially the base for the enthusiasm of cryptocurrencies.

Even if we look at the dot-com "bubble", the same is true. Investors were right, there was something very big to be expected. Today the value of dot coms are far greater than when the "bubble" was at peak. Problems involved things like individual investors were maybe getting specific investment decisions "wrong" or that information changed in such a way that people thought it was a bubble so they started acting like it was a bubble.

But we know by now that the reason for enthusiasm in the dot coms was a good reason. When it comes to cryptocurrencies, the forest is most likely there, but that doesn't mean that lots of people might not be climbing up the right trees.

Yet, it is very likely that one day cryptocurrencies will do what people today think they will. That is essentially the base for the enthusiasm of cryptocurrencies.

Even if we look at the dot-com "bubble", the same is true. Investors were right, there was something very big to be expected. Today the value of dot coms are far greater than when the "bubble" was at peak. Problems involved things like individual investors were maybe getting specific investment decisions "wrong" or that information changed in such a way that people thought it was a bubble so they started acting like it was a bubble.

But we know by now that the reason for enthusiasm in the dot coms was a good reason. When it comes to cryptocurrencies, the forest is most likely there, but that doesn't mean that lots of people might not be climbing up the right trees.

The forest isn't there.

It might have been there when 8 out of 10 bitcoin holders were nerds looking to buy pizza to make it a real currency. But today, it's just a vehicle to grab crawlers from the soil and use them as bait.

If bitcoin or etherium or altcoin or whatevercoin or anothercoin don't become a viable currency tomorrow then they have no value today. It's that simple.

That is why they exist. My question is why do you think it needs to happen by tomorrow. I'm asking because I know the relevant economic theory on this (rational expectations), and that doesn't include any time limit. Stocks can adjust today based on an expectation of something 100 years in the future.

That is why they exist. My question is why do you think it needs to happen by tomorrow. I'm asking because I know the relevant economic theory on this (rational expectations), and that doesn't include any time limit. Stocks can adjust today based on an expectation of something 100 years in the future.

Tomorrow was... im not sure of the word... a floruish. It could have been eventually.